Future of Financial Technology

The financial technology(fintech) space was one of the industries most disrupted by the COVID-19 pandemic since large financial institutions lost face with companies providing artificial intelligence and machine learning-platforms to accurately analyze how the pandemic was going to impact financial markets. This loss of faith caused funding of fintech companies to drop 13% quarter-over-quarter(QoQ) for quarter one of 2020, but the recognition of other promising areas in the fintech space has caused funding of fintech companies to bounce back with an increase of funding of 17% QoQ for quarter two of 2020. Though the fintech sector relying on AI continues to struggle, the remaining sectors in fintech trying to disrupt traditional banking systems, make lending and crowdfunding more accessible, and provide financial security are uniquely positioned to shape the future of how finance is conducted.

Banks around the world are being forced to evolve in order to provide a digital banking ecosystem, specialized customer insights, and an improved customer experience that individuals are beginning to expect. Over time, banks are known to lag behind technology innovation because of legacy systems or security concerns. Though many of those hurdles still exist, customers are no longer willing to accept legacy banking practices that don't allow one to quickly access their account information or provide customer-focused services. The COVID-19 pandemic has forced consumers to rely on the bank's fintech platforms as in-person communication is limited if not entirely restricted. As individuals begin to adapt to a world with remote banking, the companies able to streamline and personalize their financial services will dominate the banking and financial services industries. This realization has led JP Morgan, Goldman Sachs, and PWC to be at the forefront of fintech investment and makes it unlikely that COVID-19 will substantially affect these companies' dedication to their implementation of fintech services.

Fintech has also begun to increase the accessibility of loans to consumers and enable entrepreneurs to more easily raise capital through crowdfunding platforms. Though obtaining loans has long been an arduous process, fintech companies have begun to offer alternative lending models, fast approvals, and a more detailed analysis of a consumer's creditworthiness. These innovations to the lending process provide lenders with more insight into a customer's ability to pay back a loan while also allowing customers to more quickly obtain loans during periods of financial uncertainty. The lending space in fintech is yet to have a single dominant player, though there are many large players, including Affirm, Ant Group, and SoFi. Though the lending space was impacted by COVID-19, fintech companies were better equipped to quickly adapt to frequently changing circumstances. Entrepreneurs often require investments that are too risky for traditional loans leading to the creation of equity crowdfunding platforms to raise capital. Though venture capital funding has been found to bounce back in the second quarter of 2020, many startups are not able to get venture capital but still desire to grow. The immersion of Angelist and Crowdfunder offers ways for a larger population to access and invest in entrepreneurs' visions and companies. The rebound seen by venture capital funding in the second quarter of 2020 gives hope that equity crowdfunding platforms will continue to remove fundraising barriers for startups even during a financial crisis.

The financial security sector of fintech ties closely to the banking and financial analysis sectors of fintech since the need for cybersecurity for finance applications will only continue to increase as banks and lending institutions begin to facilitate more remote transactions. The COVID-19 pandemic has the potential to increase the demand for financial security companies as in-person transactions continue to be heavily limited. Increases to remote liquidity transfers between software banking and lending platforms may require more complex cybersecurity measures to be implemented. Though there are many layer players in the cybersecurity sector, the adoption of increased cybersecurity for financial institutions will only increase in importance over the next few years.

Though certain sectors in the fintech industry have substantially suffered due to the COVID-19 pandemic, certain sectors, including remote banking, crowdfunding, and lending platforms and financial security companies, will have the unique opportunity to flourish.


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